Gorman Gets $3.75 Million Incentive as CEO’s Pay Falls 7%

Morgan Stanley (MS) reduced pay by 7.1
percent for Chairman and Chief Executive Officer James Gorman,
giving him a $9.75 million package that included a $3.75 million
long-term incentive award.

The bank almost doubled Gorman’s base salary to $1.5
million from $800,000, according to a regulatory filing
yesterday by Morgan Stanley. The incentive award will be based
on the firm’s performance over the next three years. If the bank
exceeds its targets, which weren’t disclosed, Gorman could
receive twice the current value, according to the filing.

Morgan Stanley shares climbed 26 percent last year, after
tumbling 44 percent in 2011. The New York-based bank’s 2012
return on equity was 5 percent, below Gorman’s goal of 15
percent, leading him to lay out a plan last month to double the
firm’s ROE even without an improvement in markets.

Last year “was a transition year for Morgan Stanley, and
management along with much of the organization saw reduced
compensation,” Robert Kidder, the company’s lead independent
director, said in the filing. The awards reflect that “the
board is confident of the strategic decisions taken by senior
management,” he said.

The board of directors decided to award the new incentive
in place of performance stock units that comprised $1.94 million
of Gorman’s pay last year, meaning a greater proportion of his
compensation is tied to the firm’s results. Excluding those
performance-based awards, the drop in Gorman’s pay was 30
percent.

Separate Award

Morgan Stanley’s decision to separate Gorman’s award based
on future performance targets from year-end pay brings the plan
in line with New York-based Goldman Sachs (GS) Group Inc., which gave
CEO Lloyd C. Blankfein an incentive valued at $3 million last
year and a $7 million award the previous year.

The incentive awards will convert into shares in 2016,
based on meeting targets related to ROE and relative total
shareholder return, according to the filing. Last year’s
performance stock units will pay out fully if the bank earns a
10 percent average ROE over three years and matches the
performance of the 80-company Standard & Poor’s 500 Financials
Index.

Gorman missed out on performance stock units granted as
part of his 2009 pay after the firm didn’t meet the targets
attached to those awards in the three years ended in 2012. Those
PSUs were valued at $2.9 million when he received them.

Stock Options

As part of his 2012 pay, Gorman got stock options valued at
$2.6 million, according to a filing last week. He also received
a $2.6 million deferred cash bonus and his $800,000 salary, a
person briefed on the decision has said.

Gorman, 54, who previously received the lowest base salary
among CEOs of the six largest U.S. banks, now gets the same as
JPMorgan Chase & Co. (JPM) CEO Jamie Dimon, 56, and Citigroup Inc.’s
Michael Corbat, 52.

Morgan Stanley also gave long-term awards valued at $3
million to Greg Fleming, who oversees the bank’s wealth and
asset-management units, and Colm Kelleher, who leads the trading
and investment banking division. Chief Financial Officer Ruth Porat was granted an incentive worth $2.75 million.

The bank raised the base salaries for all members of its
operating committee to $1 million, or the equivalent amount in
their local currency, according to the filing. Fleming, Kelleher
and Porat were included in those raises.